Yesterday saw the publication of the December 2011 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.
The Index shows that capital values fell by 0.1% in December 2011, following several months of almost flat performance. Prices reached a peak in June 2007 and fell steadily until August 2009 when the current rally started. Prices then increased by 15% in the year to August 2010 but since then prices are up a measly 1.9% and in six of the last 12 months the monthly increase had only been 0.1%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 11.4%. Commercial prices in the UK are now 34.2% off their peak in June 2007. On an annual basis prices are up by 1.2%. The NWL index remains at 828 which means that NAMA needs to see a blended increase of 20.7% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).
The table below shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner.
The decline in December 2011 is not surprising, and comes on the back of dimmer economic prospects for the UKas a whole, with some economists now saying that the UK has re-entered recessionary territory. NAMA is understood to have about €11bn of assets in the UK (at NAMA acquisition prices) of which about half is in London. The Agency has confirmed that the majority of its disposals to date have been in the UK where access to finance and a relatively buoyant – relative to Ireland, that is – market have tempted the Agency to initiating disposals there rather than in Ireland where property prices – both residential and commercial – continue to come under pressure.
The outlook for commercial property in the UK is unclear with the economy on shaky ground, amidst a EuroZone that continues to lurch from one crisis to the next, even after four years. This month, I am going to defer to the good folks at property group and NAMA valuation panel member, and indeed NAMA loans sales advisory panel member, Jones Lang LaSalle (JLL) and their 2012 predictions for the UK property market. It predicts the UK economy will be worse in 2012 than in 2011, though it hopes that by mid-2012 and assuming some resolution to the EZ crisis, an upturn can be expected. It remains upbeat about London in leading any recovery due to “its international links and its attractions as a safe haven in a crisis”. Commercial rents are set to moderate in their rate of increase, but they are still expected to increase – that’s for 2012, a bounce is expected in 2013. The gulf between prime London and the rest is seen as widening. Shortages of grade A accommodation in London will act to support prices.
NAMA Wine Lake 